Metgasco announces plans to merge with US petroleum company

GAS company Metgasco is poised to go international after announcing a merger deal with a US firm that would effectively hand the Australian company's shareholders control of the combined business.

The deal with Elk Petroleum still has to be voted on by the US company's shareholders and approved by regulatory bodies but has the full support of both company boards, Metgasco has said in an announcement to the Australian stock exchange.

The merger would give Metgasco access to oil fields in the Rocky Mountains in the US, which it says would, in the medium term, provide the company with a cashflow in the millions of dollars while it continued waiting for a chance to resume drilling on the Northern Rivers.

As part of the deal, Metgasco will provide Elk Petroleum with a $2.5m short term loan, which would be repaid in Elk shares by mid-2015 or within 30 days if the deal collapsed.

Under the deal, Metgasco shareholders would end up with 77% of the shares in the new company with Elk shareholders having the remaining 23%.

The first step for the combined company would be the development of the "Grieve Enhanced Oil Recovery" project in the US, which would be done in partnership with Denbury Resources Inc.

Elk now holds a 35% interest in the oil field with Denbury Resources. The plan is to extract the field's remaining oil using "carbon dioxide flood technology". Elk predicts this message could bring the field back to its 12,000 barrel-per-day peak by 2019, with production falling off sharply between 2019 and 2035.

Elk Petroleum's history and forecast for oil production at the Grieve oil field in Wyoming, in the United States.

"This is an exciting opportunity for Metgasco," Metgasco chairman Len Gill said in the announcment.

"We are acquiring oil reserves with ready access to market and have exposure to potentially higher oil prices after 2017 when oil production is expected to commence.

"With the bulk of the wells and facilities for the Grieve project in place, the Grieve project is a well advanced development with relatively low capital costs remaining before first production. We have an expert, world class operator in Denbury. The reservoir is being re-pressurised to enable oil production.

"The Merger complements our NSW gas resources which we believe will add significant value to the company when the regulatory environment is satisfactory and investment confidence has returned.

"The Elk merger also offers some USA oil opportunities beyond the Grieve EOR project. One of our first activities will be to assess the opportunities identified by Elk and determine the appropriate timing for their appraisal and possible development. We believe we can grow the oil business in the USA, and in particular EOR projects."